Social ventures, including social enterprises and social purpose businesses, strive to provide both attractive returns to investors/funders and market-based solutions to social and/or environmental issues. These ventures provide an investment opportunity that blends the value of social impact with financial gain. The social-financial return continuum in Figure 1 shows the social and financial return that can be expected from both types of social ventures.
The financial instruments typically available along the continuum in Figure 1 and the corresponding exit expectations of funders and investors include:
Figure 1—Social and Financial Return Continuum
These articles detail the typical financing options available to social enterprises and “Financing Options for Social-Purpose Businesses (for-profit)”.
For social ventures the term “exit strategy” has a very different meaning than for traditional venture-backed companies. The exit strategy will depend on the type of venture, the capital available to you and the return expectation of your funders or investors, (which includes varying degrees of social, environmental and financial returns).
There are really two components of exit for SEs and SPBs– the financial returns and the social and/or environmental returns generated by the venture.
Considerations regarding exit strategy as you’re starting your venture:
Investors in SPBs and social entrepreneurs find it challenging to define what constitutes a socially responsible exit. How can a venture retain its social mission through a traditional financial exit—an acquisition or public offering? One way could be by including social covenants and mission-focused shareholders’ agreements early on in the financing of the venture. One approach on how you might ensure the social mission is embedded in your organization is through registering your SPB as a B Corporation. Other organizations have provided founders and other key social stakeholders with special voting rights on their shares with respect to the ultimate sale of the business, to enable them to consider both the social and financial returns to stakeholders as a result of the exit event.
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MaRS Social Entrepreneurship. (2009). Part 1: Social Venture Financing, Spring 2009. [white paper]
Alter, K., Shoemaker, P., Tuan, M. & Emerson, J (2001). When is it Time to Say Goodbye? Exit Strategies and Venture Philanthropy Funds. Retrieved November 10, 2009 from www.virtueventures.com/resources/exit-strategies